Preparing for 2014 Health Reform: Six Benchmarks of Benefit-Plan Compliance

Employers may face stepped up scrutiny of benefits-plan compliance by the U.S. Department of Labor following full implementation of health reform in 2014, says Lockton Senior Vice President and Director of Compliance Services Mark Holloway. Here’s a short checklist to help you avoid the most-frequent non-compliance issues:

Make sure you have both a plan document and a summary plan description. The plan document is the legal document that establishes and governs the plan; the SPD summarizes the legal terms in the plan document in language that can be understood by, and distributed to, plan participants. ERISA requires that you have both. An employer can decide whether to maintain one plan document for health and welfare coverages, or multiple documents. And don’t make the mistake of assuming that the certificate books/evidence of coverage documents provided by the insurer or HMO meets ERISA’s SPD rules. Often the documentation provided by the insurer/HMO will not include all of the terms required by ERISA’s SPD content regulations.

File Forms 5500. This may seem obvious, says Holloway, but sometimes employers fail to do this properly. Employers subject to ERISA must file a Form 5500 for any health and welfare plan that covers at least 100 participants at the beginning of the year (“funded” plans file regardless of size). This requirement applies not only to typical group medical, dental and vision plans, but also to business travel accident insurance, voluntary life, accident and disability coverages, as well as employee assistance plans (EAPs) that provide counseling benefits. The fact that a group plan might be an employee-pay-all plan is irrelevant.

Make sure there are adequate COBRA procedures in place. COBRA requires employers with 20 or more employees to offer covered employees the option to continue health coverage in certain instances. The employee and a covered spouse must receive an initial COBRA notice within the first 90 days of becoming covered under the health plan. The COBRA requirements are complex, and employers need to ensure that third party vendors agree to administer COBRA according to the applicable legal requirements. Remember that COBRA applies to group health plans, including medical, dental and vision plans, health flexible spending and health reimbursement accounts, and can also apply to EAPs and wellness programs.

Distribute initial and annual Notices and make other annual filings. Health plans are required to supply enrollees, at enrollment, with HIPAA special enrollment right and pre-existing condition restriction notices, and a HIPAA privacy notice. Initial COBRA notices are due shortly after enrollment. On an annual basis, health plans must supply notice that coverage is provided for reconstructive surgery following a mastectomy. There are other filings required if plan participants are eligible for coverage under Medicare Part D, and state and local laws may require other filings. Other requirements that may be on the Department of Labor checklist relate to employers who are grandfathered under health reform. Those employer plans don’t need to cover preventive care at 100 percent, says Holloway.

Pay attention to IRS Tax Discrimination Rules. Tax law contains rules that prohibit discrimination in favor of highly compensated and key employees. Separate discrimination rules apply to self-funded medical plans, group-term life insurance, and benefits provided under a Section 125 plan (including FSAs). In contrast to the rules that apply to retirement programs, the IRS has yet to issue definitive guidance on many aspects of discrimination testing, but that guidance—and perhaps a renewed enforcement initiative in light of health reform—could be just around the corner, says Holloway.

Ensure you have complete Section 125 cafeteria plan information. A cafeteria plan is only valid if the plan is committed to writing and the written document contains all the terms the IRS regulations require. In the event of an IRS audit, some of the tax benefits an employer is attempting to achieve could be lost if the employer doesn’t have a valid written cafeteria plan document.

“And we’ve seen a number of mid-size firms who will be unprepared, depending on the strength of their benefits consultant, and the efficiency of their current processes. It’s best to be prepared and avoid the risk. But to some, it’s like the risk of speeding on the highway—you never know when the police will crack down on 55 mile-per-hour speed limit; but they can at any time.”

For more information on how Lockton can help your organization with benefits compliance, please contact me at rruotolo@lockton.com.